It's tax season, which means that people all over America are nervously meeting with their accountants or sitting down with TurboTax, trying to figure out how much they owe Uncle Sam this year.
For law-abiding Bitcoin fans, tax season can be especially stressful. The IRS's guidelines for virtual currencies, laid down last year, classified Bitcoin as property for federal tax purposes. That means that, just as with any other financial asset, Bitcoin users are required to pay taxes whenever they sell or exchange Bitcoin for a gain.
As Steven Rosenthal of the Tax Policy Center notes, the IRS's classification also means that Bitcoin users are triggering capital gains taxes whenever they buy anything with Bitcoin, if the value of their holdings has increased since the time of their initial purchase. (So, for example: if I buy a $10 pizza with a Bitcoin I originally bought for $2, I would owe capital gains taxes on the $8 difference.) These rules are complex, and require meticulous bookkeeping. So it's natural that some U.S.-based Bitcoiners—especially the more libertarian-leaning ones—might be tempted to, shall we say, use flexible accounting methods.
Of course, Bitcoiners would never knowingly dodge their tax duties. (And, since Bitcoin had such a horrible year in 2014, it's possible that many of them have incurred capital losses, which they wouldn't owe taxes on.) But just in case the IRS—or anyone else—would like to lend a helping hand, here are a few people who made Bitcoin purchases in 2014, and might need a little extra assistance settling this year's tax bills:
The Winklevoss Twins
Cameron and Tyler Winklevoss, probably the most famous Bitcoiners in the U.S., have said that they've never sold any of their Bitcoin holdings. But they did use the virtual currency to book a $250,000 space trip on Virgin Galactic last March—which is treated like a sale, for tax purposes. Depending on when they purchased those bitcoins, their capital gains taxes could amount to tens of thousands of dollars apiece.
Reddit user "remoraguy," who purchased a car with Bitcoin at Earl Stewart Toyota in Lake Park, Florida in June 2014
Kansas resident Josh Zerlan, who bought a $500,000 home using Bitcoin
Zerlan has "also purchased two cars with Bitcoin," according to KHON.
The unnamed "Silicon Valley entrepreneur" who used Bitcoin to buy a $1.6 million house in Lake Tahoe
Reddit user "benjaminbartholomew," who bought fresh fruit from Nitta Ranch in Loomis, California using Bitcoin
All of these Twitter users who tweeted about buying things in Bitcoin, or selling part or all of their Bitcoin holdings in 2014:
— Simon Thomas (@SimonThomas) May 25, 2014
Some of these transactions were probably too small to trigger more than a few cents of capital gains. But, hey, rules are rules. And given the stated desire of the Bitcoin community to clean up Bitcoin's public reputation, they'll no doubt appreciate our attempt to help them follow federal tax laws.